Who Are The New BRICs?

In 2001, Jim O’Neill, economist for Goldman Sachs, coined the acronym BRICs to refer to the economic potential represented by four developing countries: Brazil, Russia, India, and China.

Why did we need a new acronym? Because, O’Neill claimed, the term “emerging markets” was too broad. Emerging markets can refer to any country with great prospects for rapid growth and industrialization; right now, that might include anywhere from 25 to 30 nations. But the four BRICs have enormous potential over and above the Sri Lankas and Estonias of the world. Specifically, Brazil and Russia have vast untapped wells of natural resources. China and India are really good at making stuff and exporting it.

Ten years later, O’Neill believes he’s indentified four new emerging markets that have also achieved BRIC status. They are Turkey, Indonesia, Mexico, and South Korea (TIMS?). O’Neill refers to the BRICs and the TIMS together as “growth markets.” Two questions to explore today: 1) What do the TIMS have to offer that puts them in this new elite category of emerging markets, and 2) Isn’t all this labeling just a marketing ploy that allows economists to justify their existence?

Turkey

Its economy receives high marks for battling through the global financial crisis of 2008. Not one Turkish bank went under during the crisis, due to limited mortgage exposure and few “toxic assets.” The year ending December 31, 2010, saw its stock market second to only Argentina’s in performance. It also received a credit upgrade by Moody’s in January of 2010, while neighbor Greece just about had the Acropolis foreclosed on.

Is it BRIC-worthy? Our view is yes. While the strong hand of government intervention guided the country through the financial crisis, the private sector is developing rapidly. Commerce is deeply ingrained in the DNA of this secular Muslim, West-leaning, ancient civilization.

Industry that deserves special attention: Agriculture and tourism are strong and, believe it or not, Turkey is one of the world’s leading shipbuilders. But its construction and contracting sector stands out. European and Middle Eastern countries will have to start building again and embark on much-needed infrastructure upgrades, and Turkey’s construction sector is poised to benefit.

Indonesia

Remember the Asian financial crisis in 1997? Indonesia was at ground zero. Its climb back to prosperity has been marked by a more open sociopolitical climate. Along with India and China, it has been one of the three fastest growing economies in the G-20 and its stock market was Asia’s strongest in 2010.

Is it BRIC-worthy? Not yet. It continues to struggle to attract foreign capital. A task made even harder by revelations of massive corruption among government officials — a nasty habit they can’t seem to shake.

Industry that deserves special attention: Oil and gas. The government dominates the industry, and a lack of investment in production facilities and new equipment has held it back. A move to privatization in this arena could spur growth and turn the country from being a net oil importer to a strong net exporter.

Mexico

Most of the Mexico-related headlines in the U.S. are negative, focusing on violence committed by drug cartels and illegal immigration. But the country’s economy grew by 5% in 2010 after contracting by 6.1% in 2009. It’s the sixth-largest oil producer in the world and a strong manufacturing exporter (autos and electronics) mostly to the U.S.

Is it BRIC-worthy? It is. Free trade agreements have turned Mexico into a player. The country relies heavily on exports and has agreements in place with more than 40 countries, with NAFTA giving it the biggest boost.

Industry that deserves special attention: Automobile. Conventional wisdom says that NAFTA drove auto manufacturers there for the cheap labor in the 1990s, but the Big Three have actually had a presence in Mexico since the 1930s. Try to think of a big auto name that doesn’t have facilities there. Honda, Toyota, Mercedes, Nissan, Volkswagen, and BMW have all moved manufacturing to Mexico, and that brought parts suppliers and research and development departments as well.

South Korea

South Korea was home to one of the fastest growing world economies between the 1960s and the 1990s, with its GDP growing by more than 8% per year. It avoided a recession during the global financial crisis two years ago, and unemployment remains low.

Is it BRIC-worthy? It’s not that we don’t like them. But the guy in the pajamas next door scares us. The volatile nature of the country’s relationship with aggressive neighbor North Korea makes it too hard to be confidently bullish on its near-term prospects.

Industry that deserves special attention: Shipbuilding. China recently overtook South Korea as the world’s largest shipbuilder, but Seoul is determined to wrest the title back. In a world where demand for oil will continue to rise and big manufacturers like India and China need to get their wares to market, the outlook for the construction of things like large container ships looks promising.

the acronyms: more than arbitrary pairings?

The questions remain: Why the acronym? Does everything have to have an acronym these days? Do these four countries have anything in common that make them TIMS, or is this just packaging on a very high level?

Truth be told, these countries have very little in common besides the fact that they’re very large emerging markets. So does that mean they offer better investment opportunities than other countries on the list? Competent and honest government officials and a healthy respect for freedom and free markets might be a better indicator of a country’s growth prospects, and some of the BRICs and TIMS have questionable records in these areas.

But advanced investors would do well to take notice of O’Neill’s pairings. Some individual or institution looking for above-average growth (with the attendant above-average volatility) should spend a little extra time evaluating these “growth markets,” because sometimes prophesies become self-fulfilling. And an endorsement from Goldman Sachs could spur foreign investment that might have gone elsewhere.